The OVDI and Streamlined programs were designed to encourage taxpayers to voluntarily come forward to avoid substantial civil penalties and even criminal prosecution for their failure to file certain foreign information returns and properly report their income.
The penalty for non-willful failure to file FBARS for example is $10,000 for each violation per year assuming the taxpayer can’t establish reasonable cause for their failure to file. If the failure to file is willful the civil penalty is the greater of $100,000 or 50% of the balance in an undisclosed bank account per year at the time of the violation. There is no reasonable cause exception for the willful penalty.
The failure to file other required foreign information returns such as Forms 5471, 5472, 8938 and 3520 impose similar substantial civil penalties and in rare circumstances criminal prosecution. So the risks are significant and now due to FATCA the IRS will soon be able to identify more U.S. persons who failed to meet their filing obligations.